Thursday, 19 March 2020

Impact of Covid-19 on Global Economic Growth

(Based on Prof. Damodaran's blog post: A Viral Market Update III)

Global equity markets are reeling under the pressure of Covid-19 as shown in the chart below.

 Most of the benchmark bond yields dipped to record lows and recovered only after governments announced monetary measures to boost liquidity.

At the risk of sounding mercenary, the moot question on everyone's mind is the extent of Covid-19's impact on the global economy. One possible indicator could be the US S&P 500 corporate earnings. Given below is the list of top -5 one year earnings decline in US S & P 500 corporate history since 1960. This can perhaps, give us a range (15% to 40%) of percentage decline in the economic activity across the globe.

The silver lining is that each time earnings declined they bounced back strongly in the subsequent years as shown in the chart below.

Like always, let us hope and pray that the global economy comes back stronger and better after Covid-19!

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